CORPORATE TAXATION;

RESIDENCE STATUS AND BASIS PERIOD

CHAPTER 1

PREPARED BY:

FATHIAH ATHIRAH BTE HARIS

LECTURER
FACULTY OF BUSINESS
MULTIMEDIA UNIVERSITY
RESIDENCE STATUS FOR COMPANY AND BODY OF
PERSONS

Section 8(1) of the Act provides:

(a) a Hindu joint family is resident in Malaysia for the basis year for a YA if its manager or
karta is resident for that basis year;
(b) a company or a body of persons (not being a Hindu joint family) carrying on a business or
businesses is resident in Malaysia for the basis year for a YA if at any time during that basis
year the management and control of its business or of any one of its businesses, as the case
maybe, are exercised in Malaysia; and
(c) any other company or body of persons (not being a Hindu joint family) is resident in
Malaysia for the basis year for a YA if at any time during that basis year the management
and control of its affairs are exercised in Malaysia by its directors or other controlling
authority.
• A company is tax resident in Malaysia if its management and control are exercised in Malaysia.

Management & control; Location of meeting in Major decisions are made in

exercised by its directors Malaysia order to direct and control the
company

Thus, the company is tax

resident in Malaysia.

• A company management and control must ‘one time’ exercised in Malaysia to qualify as tax
resident.

• Once a company is resident, then the company is presumed to be tax resident until the company
inform IRB otherwise (Sec 8(2) of the Act).

• Where foreign company set up a branch in Malaysia for business, a branch is treated as NR
company in Malaysia unless if the management and control of the branch is exercised in
Malaysia.
• Factors not relevant for determination of ‘management and control’.

Location of Business,
Shareholders
Place of Residence of BODs
Control
Incorporation
• the business • it is the ‘control by • the ‘management
operation may be directors’ that and control’ vests in
wholly carried on in determines the place where the
Malaysia but this ‘management and directors meet and
would not control’. make major
tantamount to decisions not the
‘management and directors’ tax
control’ being residence status.
exercised in
Malaysia.
• IRB’s approach.

IRB’s would consider the following factors in determining the company’s residence
status:

(i) place where AGM(s) are held and what transpired during the meetings;

(ii) minutes of the BOD’s meetings and the decisions taken that are relevant in
determining the management and control of the company;

(iii) location of the BOD’s meetings;

(iv) the company’s letter head.

 • Distinction between resident and non-resident company.
RESIDENT NON-RESIDENT
Scope of charge Income accrued/derived in from Malaysia Income accrued/derived in from Malaysia
(territorial scope) EXCEPT companies carrying on (territorial scope).
business of banking, insurance, shipping and air
transport (world scope basis).

Foreign source income received Income will be exempted from income tax and Income will be exempted but cannot credited
in Malaysia from outside credited to exempt income account which will be to exempt income account.
Malaysia available to declare exempt dividends.

Incentives available under the Available Not available

ACT 1967 and PIA 1986

Withholding tax Not applicable Subject to WHT ranging from 10% - 15%
Double taxation relief Applicable Not applicable
Income tax rate 17%, 24% 24%
BASIS PERIOD AND CHANGE IN ACCOUNTING DATES
• Basis period;

w.e.f YA 2004, a company, limited liability partnership, trust body or co-operative

society may have an option to close their accounts either on 31 Dec or non-31 Dec.

BUT, taxpayer other than a company, limited liability partnership, trust body or co-
operative society is required to close its accounts on 31 Dec.
• Commencement of business.

The commencement date and the year-end date are important for business source because:

a) any revenue expense incurred before the date of commencement is not deductible in
arriving adjusted income.

b) capital allowance on qualifying capital expenditure would be available beginning from

the first basis period where the commencement date falls.

c) it results in the determination of the first YA.

• Basis period on commencement of operations.

Commencement of business

Is the 1st Sec. 21A(2)

set of Yes Refer example 1
account = Accounting period =
12 months Basis period for the
relevant YA
No

Is it
required by
law or No Sec. 21A(4) applies Refer slide 13
complied to
groups year
end?

Yes

The commencement date of the specified date shall

Refer example 2 & 3
form the basis period of the business
EXAMPLE 1 (1st set of accounts consist of 12 months Sec. 21A(2))

Kopi Sedap Sdn. Bhd. commenced business on 1.3.2018 and closed its account to
28.2.2019.

Thus, its basis period will be as follows:

YA2018 n/a
YA2019 01.03.2018 – 28.02.2019 (12 mths.)
YA2020 01.03.2019 – 28.02.2020 (12 mths.)

Accounting period = Basis period

EXAMPLE 2 (required by law to close its accounts on specified day Sec. 21A(5))

Diamonds Ltd. Commences business on 1.7.2019 in Malaysia and under the law of the country
in which the company was incorporated, it is required to make up its accounts to 30.9 each year.
Accounts were made up from 1.7.2019 to 30.9.2019 and to year ending 30.9 thereafter.

Thus, the company’s basis period will be as follows:

YA2019 01.07.2019 – 30.09.2019 (3 mths.)
YA2020 01.10.2019 – 30.09.2020 (12 mths.)
EXAMPLE 3 (close its accounts on specified day to coincide with the group year end
Sec. 21A(5))

A Sdn. Bhd. is a new company that commences its business on 01.08.2019. It is a member
of a group of companies of which all the companies in the group make up their accounts to
31.3.

Thus, the basis period for A Sdn. Bhd. will be as follows:

YA2019 01.08.2019 – 31.03.2020 (8 mths.)
YA2020 01.04.2020 – 31.03.2021 (12 mths.)
 • Sec. 21A(4)

Commencement Basis Year

Year ending

in the same year of in the 3rd year from the year of

in the 2 year from the
nd
commencement commencement
year of commencement
(< 12 months) (> 12 months)

accounting period = basis accounting period = basis period accounting period = basis
period for the 1st YA for the 2nd YA period for the 3rd YA

Refer example 4 Refer example 5 Refer example 6

EXAMPLE 4 (1st account closed in the same year Sec. 21A(4)(a))

Jauhari Sdn. Bhd. commenced business on 1.4.2018 and closes the first set of accounts on 30.9.2018
and thereafter annually on 30 September.

The accounting period was as follows:

Accounts Accounting Period Period (month)
First 1.4.2018 – 30.9.2018 6 Notes:
Second 1.10.2018 – 30.9.2019 12
The first accounting period of 6
months is accepted as the basis
period for the first year of
assessment although the period is
So, the basis period are: less than 12 months or closed on a
date other than 31 December
YA Basis Period Period (month)
2018 1.4.2018 – 30.9.2018 6
2019 1.10.2018 – 30.9.2019 12
EXAMPLE 5 (1st account closed in the following year Sec. 21A(4)(b))

Fix Focus Sdn. Bhd. commenced business on 1.9.2018 and closed its first set of accounts on
28.2.2019 and on 28.2 every year subsequently.
The accounting period was as follows:
Accounts Accounting Period Period (month)
Notes:
First 1.9.2018 – 28.2.2019 6
There is no basis period for the
Second 1.3.2019 – 28.2.2020 12 year of assessment 2018.

Although the operations started in

So, the basis period are: 2018 but the first accounts
closed in 2019. The first set of
YA Basis Period Period (month) accounts ending in 2019 is the
basis period for the year of
2019 1.9.2018 – 28.2.2019 6
assessment 2019.
2020 1.3.2019 – 28.2.2020 12
EXAMPLE 6 (1st account closed in the 3rd year Sec. 21A(4)(c))

Jerami Sdn. Bhd. commenced business on 1.11.2018 and closed its first set of accounts on 31.3.2020
and on 31.3 every year subsequently.
The accounting period was as follows:

Accounts Accounting Period Period (month) Notes:

First 1.11.2018– 31.3.2020 17 There are no basis period for the years
Second 1.4.2020 – 31.3.2021 12 of assessment 2018 and
2019.

So, the basis period are: The first set of accounts involved 3
calendar years (2018 to
2020) and closed in 2020. The first
YA Basis Period Period (month)
accounting period of 17
2020 1.11.2018– 31.3.2020 17 months is accepted as the basis period
2021 1.4.2020 – 31.3.2021 12 for the first year of
assessment that is the year of
assessment 2020.
 • Change of accounting date. New accounting period
ending in the following
Is the normal
year
accounting
Accept the basis period
period ending
31 dec? New
DG will direct the basis accounts Refer example 7
No prepared
Yes
period in accordance for less
Yes with Public Ruling than 12
months
New accounts and last
Sec. 21A(3) accounts ending in the
The basis period for the same year
year of change is year No
ending 31 Dec. Aggregate the new accounts
with the following basis period
as YA for the following year

Refer example 8
New accounts ending in New accounts ending in
the following year the 3rd year

Accept the basis period Apportion the new accounts

into two basis period for the
Refer example 9 two YAs

Refer example 10
NORMAL ACCOUNTING PERIOD; NON - 31
DEC
EXAMPLE 7 (New accounts are prepared for less than 12 months & ending in the
following year)

Herba Harum Bhd. normally makes up its accounts to 30.11. it decided to change its accounting year
end to 31.3 in the following year and subsequent year.

Accounting Period Period (month)

Notes:
1.12.2016 – 30.11.2017 12
1.12.2017 – 31.3.2018 4 The failure year is 2018. The DGIR
will determine the basis
1.4.2018 – 31.3.2019 12
periods for the years of assessment
2018 and 2019.
So, the basis period are:
Although the accounting period for the
YA Basis Period Period (month) failure year is less than 12 months,
that period would be accepted as the
2017 1.12.2016 – 30.11.2017 12 basis period for the year of assessment
2018 1.12.2017 – 31.3.2018 4 2018 as the accounts in the failure
year
2019 1.4.2018 – 31.3.2019 12 are closed in 2018.
EXAMPLE 8 (New accounts are prepared for less than 12 months & ending in the
same year)

Multimedia Superior Sdn. Bhd. normally prepares its accounts to 30.6 annually. The company
changed its accounting period date to 31.12 for its own convenience.

Accounting Period Period (month)

1.7.2017 – 30.6.2018 12 Notes:
1.7.2018 – 31.12.2018 6 The failure year is 2019. The DGIR
1.1.2019 – 31.12.2019 12 will determine the basis
periods for the years of assessment
2019 and 2020.
So, the basis period are:
The accounts for the entire period
YA Basis Period Period (month) from 1.7.2018 to 31.12.2018 and
2018 1.7.2017 – 30.6.2018 12 1.1.2019 to 31.12.2019 will be
combined and taken as the basis
2019 1.7.2018 – 31.12.2019 18 period for the year of assessment
2020 1.1.2020 – 31.12.2020 12 2019.
EXAMPLE 9 (New accounts are prepared for more than 12 months & ending in the
following year)

Ah Fatt Bhd. normally makes up its accounts to 30.6 every year. The company changed its
accounting date to 30.9. accounts were made up to the following dates:

Accounting Period Period (month)

1.7.2016 – 30.6.2017 12 Notes:
1.7.2017 – 30.9.2018 15
The failure year is 2018. The DGIR
1.10.2018 – 30.9.2019 12
will determine the basis
periods for the years of assessment
So, the basis period are:
2018 and 2019.

Although the accounting period for the

YA Basis Period Period (month) failure year is more than12 months,
that period would be accepted as the
2017 1.7.2016 – 30.6.2017 12
basis period for the year of assessment
2018 1.7.2017 – 30.9.2018 15 2018.
2019 1.10.2018 – 30.9.2019 12
EXAMPLE 10 (New accounts are prepared for more than 12 months & ending in the
3rd year)

WinWin Sdn. Bhd. Closes its accounts to 30.11 each year. On 1.12.2018, it decides to change its
accounting date to 28.2 and to 28.2 for its subsequent years. The company closes the account from
1.12.2018 to 28.2.2020 (15 months).
Accounting Period Period (month)
1.12.2017 – 30.11.2018 12
Notes:
1.12.2018 – 28.2.2020 15
The accounting period 1.12.2018 to 28.2.2020
1.3.2020 – 28.2.2021 12
involved two years of assessment. The basis
So, the basis period are: periods for the years of assessment 2019 and
2020 are determined by dividing that
accounting period into two periods, 8 months
for the year of assessment 2019 and 7 months
YA Basis Period Period (month) for the year of assessment 2020.
2018 1.12.2017 – 30.11.2018 12
When there is an uneven division of the basis
2019 1.12.2018 – 31.7.2019 8 periods for the two years of assessment, any
2020 1.8.2019 – 28.2.2020 7 fraction of a month should be treated as falling
in the first basis period.
2021 1.3.2020 – 28.2.2021 12